The U.S. Treasury Department has invested $50 billion in the General Motors bailout and now owns 26.5 percent of GM stock, about 200 million shares and more than one-fourth of the company. GM was happy to get the taxpayer dough but now wants the government to sell its stock. Trouble is, the government won’t comply. What’s the deal here?
According to news reports GM executives complain that the heavy government ownership “hurts the company’s reputation and its ability to attract top talent due to pay restrictions.” So apparently even $50 billion federal bailouts come with strings attached that are not beneficial to the company. That reality apparently got lost on the front end.
The Feds say selling the GM shares would mean “huge investment losses,” according to one report. At current share price of about $24.14, the feds would lose about $15 billion. To break even on the bailout GM stock would need to more than double to $53 a share. GM sales are up only 11 percent over last year, according to the company, so such a jump is unlikely.
The bailout may have hurt GM’s reputation, “Government Motors” and all that. President Barack Obama, however, relies on the bailout to enhance his own reputation as The Man Who Saved America. So no mystery he’s not eager to sell. His view of the role of government also comes into play.
He doesn’t want the government to maintain a level playing field. Rather, he wants the federal government to pick winners and losers in the marketplace. That comes through in the GM bailout and Solyndra, an outfit that failed spectacularly despite more than $500 million in stimulus money. Another Obama connection got stimulus money for biofuel, which the Navy buys at many times the cost of conventional fuels.
The President of the United States likes the idea of Government Motors. That’s why the Treasure Department won’t sell its 200 million GM shares. This development comes as GM shuts down production of the Chevy Volt, an administration favorite, due to slow sales.